Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser said Wednesday that inflation risks had increased, lifting the Australian dollar as policymakers weighed higher energy costs against the household burden of further rate increases.
In a Reuters market snapshot at 1:25 a.m. ET (05:25 UTC), the Australian dollar was up 0.2% at $0.70155. It had earlier reached $0.70289, its highest level since Sept. 29. Reuters put the U.S. dollar index at 101.79, near a three-week low.
Hauser said oil prices were about one-third above the level assumed in the RBA’s August forecast. He also identified technology-related demand and limits on Australia’s capacity to supply goods and services as inflation pressures. The bank was still finalizing its forecasts, he said, and he did not indicate whether it would raise rates in November.
The warning followed the RBA’s Sept. 29 decision to raise its cash rate target by 25 basis points to 4.60%. The Australian Bureau of Statistics said consumer prices rose 4.0% in the 12 months to August, compared with 3.5% in the 12 months to July. The August reading was above the RBA’s target of 2% to 3% inflation on average over time.
Higher rates also carry costs. Hauser said further tightening could weaken economic activity and employment, and he described the burden of higher mortgage payments. The bank must assess those effects alongside the risk that inflation remains elevated.
Oil supply and transport costs add to the pressure. The International Energy Agency (IEA) warned that attacks on Middle Eastern oil facilities and shipping could interrupt gains in regional supply. It estimated that observed oil inventories worldwide were 509 million barrels below prewar levels at the end of September. The IEA also said high tanker rates raised crude delivery costs and narrowed refinery margins, a pressure described in earlier EconoTimes coverage of tanker costs.
Australia’s September inflation figures are scheduled for Oct. 28, before the RBA’s Nov. 3 policy decision.
